WPP's first results after Sorrell boost sentiment and shares

Kate Holton

6 Min Read

LONDON (Reuters) - The two men running WPP (WPP.L) following the shock exit of Martin Sorrell said they would look at restructuring the group and may sell parts of it as better than expected results provided a positive start to life without the company founder.

Executive Chairman Roberto Quarta, who oversaw the departure of industry veteran Sorrell two weeks ago after an investigation into an allegation of personal misconduct, said he had asked the two executives to work on their strategy while a hunt for a new CEO continues.

Analysts have speculated that WPP could sell its market research arm Kantar or even go as far as a full break up of a business built up by Sorrell over more than three decades and now valued at around 15 billion pounds ($20.6 billion).

A person familiar with the matter said WPP, owner of ad agencies JWT and Ogilvy & Mather, had been contacted by one private equity group and a venture capital firm expressing interest in the Kantar business if WPP ever decides to sell.

“We are facing a challenging environment,” Quarta said.

“I want to reiterate that Mark and Andrew have mine and the board’s full backing to review the strategy, make recommendations to the board and then execute.

“We will be keeping an open mind and will always go where value is for shareholders but the starting point is not a break up.”

BETTER THAN FEARED

Quarta and his executive team were helped by the fact the quarterly sales were not as bad as feared, boosting WPP shares as much as 9 percent.

Organic net sales slipped only 0.1 percent — compared with a 1 to 1.5 percent drop that analysts had forecast.

But WPP, which provides advertising, data and market research to the likes of Ford, Unilever and Vodafone through its 200,000 staff in 112 countries, is still trailing peers Omnicom (OMC.N), Publicis (PUBP.PA) and IPG (IPG.N).

Read, the joint chief operating officer, said he did not underestimate the challenges ahead.

“We are not complacent about what we need to do and we recognize that we need to get the top-line growing more quickly,” Read told Reuters in an interview.

“There are structural shifts in the industry and we need to have more of a structural response, (but) we are an industry in structural change, not structural decline.”

CHANGING TIMES

WPP was particularly hit by the lower spending from consumer goods groups such as Unilever and P&G, the trend of some clients to create marketing in house and by the upheaval sparked by the growth of Google and Facebook who can help clients to cut out the middle-man of the advertising groups.

WPP said in March it did not expect to grow in 2018 and it reiterated that on Monday.

Read said he had spoken to the group’s top 20 clients since Sorrell’s departure and had been reassured that they were not looking to ditch the British company.

He said however that clients wanted a more integrated offering from WPP after years of dealing with its multiple agencies. Recent events such as a Facebook data scandal and the presence of ads next to extremist online content showed the importance of an independent advertising voice, he added.

“Clients need an independent source of advice in how to navigate this new digital environment,” he said.

Scott said the group would look to dispose some minority assets with funds raised going towards the faster growing parts of the business, such as data, technology and digital services.

Signs that the group is moving ahead with its strategy and better-than-expected trading in China and Brazil put the shares on course for their best single gain ever and mean the stock has regained the losses it incurred when Sorrell stepped down.

HARD TO REPLACE

The 73-year-old Sorrell, who built the group from a two-man outfit in 1985 to dominate the industry, remains a hard act to follow however and Chairman Quarta faced questions over his handling of the April 14 departure from analysts.

WPP did not give any details of the allegation against Sorrell who denied the charges.

Quarta said on Monday that Sorrell had quit after the investigation had concluded but before the board had considered its implications.

“The matter...was really what we consider to be a matter of privacy and therefore is a matter for Martin and hence the reason why we did not disclose,” he said.

Analysts spoken to by Reuters said the team of Read and Scott, backed by Quarta, finance director Paul Richardson and transformation officer Lindsay Pattison, had presented a joined up strategy while the improved results will boost sentiment.

Liberum media analyst Ian Whittaker said the executive team had sought to explain the restructuring already done while stating that the more bearish suggestions of industry decline were exaggerated.

“There is nothing that suggests WPP is significantly behind the curve relative to other agencies,” he said.